Since The FOMC's supposedly dovish June meeting, bonds have outperformed stocks rather notably and crude has crashed. The crucial aspect for the Minutes is the balance they struck between market turmoil overseas (dovish) and the domestic economic and housing recovery (hawkish) as to how that fits with an expectation for a 'gradual' post-September lift-off...
- *FOMC SAW CONDITIONS STILL APPROACHING THOSE WARRANTING LIFTOFF (dovish)
- *ONE MEMBER READY TO RAISE RATES IN JUNE BUT WILLING TO WAIT (dovish)
- *MANY FED OFFICIALS EXPRESSED CONCERN ABOUT GREECE AT JUNE FOMC (hawkish)
- *SEVERAL OFFICIALS VOICED UNCERTAINTY ABOUT CHINESE GROWTH PACE (hawkish)
With macro data having beaten expectations since then, the last best hope for stocks is that global turmoil picks up (as it has in Greece) to keep The Fed on hold (as they remain cornered to regain some ammo before the next 'event' happens). As SF Fed's Williams notes today the "safer course" for raising rates would be to start sooner and proceed gradually.
Pre-Minutes: S&P Futs 2052, 10Y 2.233%, EUR 1.1050, Gold $1163
Further headlines:
Hawkish
- *MOST SAW OIL PRICE STABILITY BOOSTING INFLATION CONFIDENCE
- *FED OFFICIALS GAVE A NUMBER OF REASONS FOR CAUTION OVER OUTLOOK
- *MANY OFFICIALS WANTED MORE SIGNS OF STRONGER GROWTH FOR LIFTOFF
Dovish
- *MANY FED OFFICIALS EXPRESSED CONCERN ABOUT GREECE AT JUNE FOMC
- *FED OFFICIALS GAVE A NUMBER OF REASONS FOR CAUTION OVER OUTLOOK
- *A NUMBER OF FED OFFICIALS WARNED AGAINST PREMATURE RATE RISE
- *SOME OFFICIALS SAW RISK WEAKER 1H GROWTH COULD RESTRAIN SALES
Since The June meeting...
[13]
And here is why anyone hoping the "dots" will push liftoff in September or December will be disappointed:
During their discussion of economic conditions and monetary policy, participants commented on a number of considerations associated with the timing and pace of policy normalization. Most participants judged that the conditions for policy firming had not yet been achieved; a number of them cautioned against a premature decision.
Stocks were higher on June 17 tthan they are now, so...
Also, wage growth, or lack thereof:
Many participants emphasized that, in order to determine that the criteria for beginning policy normalization had been met, they would need additional information indicating that economic growth was strengthening, that labor market conditions were continuing to improve, and that inflation was moving back toward the Committee’s objective.
And yet:
Many expected that labor market underutilization would be largely eliminated around year-end if economic activity strengthened as they expected.
But it gets worse: for the first time the Fed is actually worried about its credibility:
Other concerns that were mentioned were the potential erosion of the Committee’s credibility if inflation were to persist below 2 percent and the limited ability of monetary policy to offset downside shocks to inflation and economic activity when the federal funds rate was at its effective lower bound."
And here is why this is bad:
Inflation had been well below the Committee’s longer-run objective, but, with oil prices and the foreign exchange value of the dollar stabilizing, members expected that inflation would gradually rise toward 2 percent over the medium term.
May want to hit F5 there...
And finally, Greece:
- Several mentioned their uncertainty about whether Greece and its official creditors would reach an agreement and about the likely pace of economic growth abroad, particularly in China and other emerging market economies.
- many participants expressed concern that a failure of Greece and its official creditors to resolve their differences could result in disruptions in financial markets in the euro area, with possible spillover effects on the United States.
- The rise in yields was also supported by the release of some stronger-than-expected inflation data in the euro area and by European Central Bank communications that volatility in yields was to be expected. Against this backdrop and with a step-up in concerns about developments in Greece, equity prices declined in most countries.
That's the bad news. In mid-June there was some good news on the stock front...
Stock prices in Japan and especially in China were the main exceptions.
... the Fed may want to hit F5 on that too.
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Full Minutes below...